Dec 312010

Happy New Year 2011  Happy New Year & My Trading Resolutions

Happy New Year!

January 1st marks a special anniversary for me as it has been 1 full year that I’ve been trading full time.  I can’t believe just how much I’ve learned this year.  A year ago I didn’t know anything about market profile, volume profile, order flow, the footprint, etc.  It has been a year full of discovery.  And now is the time to put all this newly acquired knowledge to use to make some money!

Here are my resultions for the new year:

  1. Eat healthier – I love desserts but I need to cut them out.  I’ve gained around 4kg (9 pounds) this year.
  2. Exercise more – I was running 3 times/week but quit due to the freezing weather with snow & ice.  I must not make excuses.  A healthy body makes a healthy mind and this is necessary for trading.  I can walk, swim, & ride the exercise bike.
  3. Spend more time on hobbies.  I’ve neglected my hobbies in order to work harder at trading.  It’s now time to enjoy the fruits of my labor with more time for Piano, Photography, and Painting.
  4. Spend more time with the family.  My daughters are growing up so fast.  Working at home as advantages in that I’m “around more”  but I need to be away from the PC.
  5. Accept that my win rate has absolutely no bearing on my income, and a high win rate can even make less money.  I accept that I may make money with a win rate of 50%.
  6. Never move a stop loss.  Take it like a man.
  7. Avoid taking profits early.  Target or stop is my new motto.  I need to quit sabotaging myself.

I want to congratulate everyone for their work & accomplishments in 2010 and I wish you best of luck for success in 2011!

Dec 302010

I haven’t done a video in a while so I thought I’d go over my December performance on video.

Here is the spreadsheet:

I wrote “win rate ‘improving'” because my win rate was too high in November (86%) which was a result of me using loose stops and averaging down to scratch instead of stopping out.  So in December I was actually happy to see my win rate drop to 75%.  Interesting is the fact that it was 75% on Bund as well.  That means I’m taking more stops and for me that’s really good news.  I’m expecting a win rate of 66% for January.

Overall I made $779 net of commissions.  I had a $1k loss on ES (I point this out in the video) and if it weren’t for that and taking 2 weeks off for holidays, I could prorate my December performance around $2600.  That would be half of November but I didn’t expect to do as well since I’ve been working on tighter stops and minimizing risk.

So no excuses about it, not stopping out and averaging down can really hurt.  And that’s my main focus for January.  For the past week & a half I’ve been studying my past trades, practicing on playback & market replay, brainstorming, and reading other blogs, and watching other webinars.  And it’s been very helpful to me.  My plan for January is to use a 4-6 tick stop and just go for small wins.  I tried this today.  The markets were very slow but it worked and I made $235 trading one contract.  Now if I can just keep doing that then I can increase size.  Trading 10 contracts would make $2350 which would be awesome for me.  With tighter stops I expect my win rate to be about 66% so even if one of those stopped out I would have still made $50-$100 and at 10 contracts that’s $500-$1000 which is still great.  And the best part is I spent 10am – 2:15pm taking my kids to the swimming pool and lunch at a restaurant.  So I know my goals are within reach I just have to stay focused & disciplined.

That last ES trade would have hit my 2 pt target but I didn’t want to hold through the PMI news so I put my target 1 tick below the Gap fill.

I finally feel like I’m on the right track.  Minimize risk and go for small steady gains.  Rinse & repeat.  I’ll be sharing my results as we go in January.

One final thought:  I want to thank everyone who has participated in the blog comments & forums.  There have been some great ideas exchanged lately and you all have been tremendous help to me.  That’s what it’s all about – sharing, collaboration, and learning from each other.  The blog is time-consuming but it’s well worth it.

Dec 292010

This blog post started as a comment in yesterday’s post, specifically in response to a comment from Jan.  I felt it deserved its own post:

Jan – Thanks for the references & link to Don Miller.  I took his 2008 P&L and divided by the contracts traded:

$1,635,103 / 586,184 = $2.79/contract

A more realistic benchmark for me would be the figures he gave for non-member rates:

$1,125,052 / 586,184 = $1.92/contract

I originally incorrectly labeled those as pts/contract and I thought “Wow, that’s awesome”.  Then I realized pts was no where in the equation and that it’s $/contract.  $2/contract doesn’t sound so good.  In fact it sounds bad, so bad that I wonder how someone could make over a million dollars averaging $2/contract.

In How Large An Edge Do You Need to Succeed at Daytrading? Dr. Steenbarger examines the edge of one of his followers and comes to the conclusion that the edge is 1 tick. he says that’s enough to cover costs but one would have to trade large size or frequently to make a good income.

So how does Don Miller make just $2/trade (per contract)?  That seems very low to me.  Suspiciously low.  As in “I must have made a mistake somewhere”.

I was calculating expectancy differently, but in order to simplify comparisons with other traders I have added back in the simple net profit / total contracts calculation (calling it PL/Contract):

For ES it’s $14.25 which is basically 1 tick/contract.  For Bund it’s 18 euros which is 1.8 ticks/contract.  I’m still going to try and increase this but I’m not going to obsess about it.  My primary focus is to do at least 1 tick/contract with a minimum risk.  In November I used loose stops and sometimes averaged down.  For January I want to to have at least the same performance with tight stops (6 ticks max).  Once risk is under control I can focus on increasing the profit per contract.

Also note that my expectancy & PL/Contract are not the same – this is due to different position sizing and scaling in & out.  For example if on one trade I average down (trading 2 + 2 contracts) and scratch the trade my expectancy on that trade is 0 and is equally weighted with another trade that had 2 contracts.  However it I calculate PL/Contract the 4 contracts will drag the average down.  In January I plan to go back to 1 contract and will not average down so these two should be the same going forward.